1. Field of the Invention
The present invention relates generally to trading of financial contracts and other trading products, and more particularly, to a marketplace and a method for trading intangible assets and/or derivative financial contracts based on such intangible assets.
2. Background Art
A traditional securities exchange or futures exchange is an organized marketplace for buyers and sellers of listed securities to come together to make trades in those securities. The securities are bought and sold in a forum where price is determined through supply-demand mechanisms. The types of securities traded on a securities or futures exchange include, for example, stocks, bonds, stock options, futures, unit trusts, and other pooled investment products. Trade on a securities exchange is by members, or stock brokers, and stock and share holders. New issues of stocks and bonds are first offered to investors in a part of the securities markets referred to as the primary market, with subsequent trading occurring in the secondary market, where an investor purchases a security from another investor. Although there is generally no requirement of issuing stock or trading stock through the stock exchange, a stock exchange provides a centralized, ready market for the exchange of securities. For instance, bonds are usually traded “off exchange” or over-the-counter. The influence of technology on modern markets is reflected in the recent trend towards using electronic networks for securities trading, which may offer faster transactions at reduced costs, without the assistance of a specialist as an intermediary.
In order for companies to be listed and/or traded on a particular securities exchange, they must meet the listing and/or trading requirements of that exchange. The listing requirements, generally set by an exchange's board of governors, refer to the set of conditions imposed upon companies that want to be listed and/or traded on that exchange. Among the dozens of securities exchanges around the world, the listing requirements vary and reflect criteria such as minimum number of shares outstanding, minimum market capitalization, and minimum annual income. For example, companies must meet specific financial and liquidity requirements to have their securities listed on the NASDAQ Global Select Market™. For the financial requirements, a company must meet all of the criteria under at least one of three detailed financial standards, each one mandating requirements under pre-tax earnings, cash flows, market capitalization, revenue, bid price, market makers, and corporate governance. The three specific liquidity requirements involve the number of beneficial shareholders, publicly held shares, and market value of publicly held shares. Furthermore, companies must meet requirements for continued inclusion. The New York Stock Exchange (“NYSE”) has its own minimum quantitative standards of distribution and size criteria and financial criteria. To be listed on the NYSE, a company must have 2,000 holders of a unit of trading or 2,200 total shareholders, together with an average monthly trading volume of 100,000 shares or 500 total shareholders, together with an average monthly trading volume of 1 million shares, 1.1 million outstanding public shares, and a market value of public shares being $100 million for public companies and $60 million for initial public offerings (“IPOs”), spin-offs, carve-outs and affiliated companies. When a company falls below any criterion, the NYSE will review the appropriateness of continued listing.
Among an individual or corporation's assets are any item(s) of monetary value or resources with economic value. Tangible assets are those of a physical form, such as machinery, factories, buildings, land, and inventory. Those assets without tangible, physical substance are termed intangible assets, which as used herein include intellectual property (“IP”) assets. IP assets, as used herein, include patents, trademarks, copyrights and trade secrets, patent and trademark applications, business methodologies as well as research and development, inventions, discoveries, improvements, modifications, enhancements, technologies, methods and production/process information know-how, expertise, algorithms, compositions, data, works, concepts, designs, ideas, prototypes, writings, notes, and licenses of intellectual property. Non-IP intangible assets may include customer contact lists and goodwill, for example.
Within the last quarter century, IP has emerged as the leading asset class within corporate America. The United States economy has experienced a shift from manufacturing to services, with the traditional labor and industrial based economy rapidly transitioning to a knowledge-based economy. In 1975, more than 80% of the market value of companies within the S&P 500® consisted of tangible assets. By 2005, less than 20% of the companies' market value was composed of tangible assets. Subsequent to the evolution from a manufacturing base to a service base, the United States has entered into a phase of economic activity where value is captured primarily through IP and the proprietary position it offers. IP is shifting from a tool to protect knowledge and technology to an asset class that can provide liquidity for innovation.
Historically, IP trading has been highly inefficient and generally limited to single or infrequent private transactions. The IP marketplace includes any entity that uses knowledge assets as a competitive advantage. Among the market players are inventors, both individual and corporate, Patent Licensing Enforcement Companies (“P-LECs”), investors, third party valuation experts, and brokers. The market has predominantly relied on the inefficient method of hand-to-hand sale or license of IP, a process that can take years for buyers and sellers. This method is discouraging and inhibits many companies from becoming actively involved in the exchange of IP.
The majority of IP is transacted by IP holding companies of Fortune 500 firms located across the United States. Since most of these firms transfer IP in privately negotiated transactions that take place in several face to face meetings, the time, energy, and money involved in transacting IP is very high. Additionally, the process of negotiating licenses for IP rights often takes place in a disorganized manner. As a result of these inefficient and infrequent transactions, the price discovery and transparency of the IP asset class is very poor. Accounting rules and procedures for reporting on the value of IP in most financial statements further obfuscate the value of IP. Generally speaking, IP is only reported on financial statements if it is acquired (as opposed to being developed internally). Further, the records of patent and trademark ownership listed by the United States Patent & Trademark Office may not always be current, and since a majority of IP transactions tend to be private, the parties and terms of IP licenses are often unknown.
Therefore, what is needed is a marketplace for trading the intangible assets of companies or other entities and derivative financial contracts based on such intangible assets, so as to make IP transactions more efficient, transparent, and economical, and to make IP a more meaningful and valuable asset class.